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National Survey Finds Homeowner Situation Not As Bleak As Reports Indicate

COLUMBUS, Ohio -- Americans may own a larger share of their homes than is suggested by a recent Federal Reserve report, according to a new nationwide survey.

In its quarterly report released last week, the Federal Reserve said that in 2007, Americans’ percentage of equity in their homes fell below 50 percent for the first time since 1945, to 47.9 percent in the last quarter. That means for most people, the bank or mortgage company would own a greater share of their home than they do.

However, statistics from a national survey conducted by Ohio State University show that homeowners are doing better, with about 70 percent equity in their homes.

The discrepancy may be because the Fed report fails to account for homeowners who have fully paid for their home and thus have no mortgage, said Randall Olsen, director of the Center for Human Resource Research at Ohio State, which conducted the new survey.

Statistics from a national survey conducted by Ohio State University show that homeowners are doing better, with about 70 percent equity in their homes. The discrepancy may be because the Fed report fails to account for homeowners who have fully paid for their home and thus have no mortgage.

When these households, whose home equity share is 100 percent, are factored in, the average homeowner share of equity increases.

“Things are rough on the housing front, but they aren’t as bad as some of these stories would lead us to believe,” Olsen said.

“While many homeowners are hurting and the economy is definitely vulnerable, the sky is not falling.”

The survey revealed other hopeful economic news: the percentage of Americans who owed money on their credit cards, or who used payday loans, was virtually unchanged from 2006 to 2007.

These new data come from the Consumer Finance Monthly, a survey of household finances conducted by the Center for Human Resource Research, a survey center at Ohio State that has been doing survey work and studying asset accumulation since 1966.

The survey, which included 3,500 randomly selected households across the country, shows that about 75 percent of respondents own, or are buying, their home — a number virtually unchanged from 2006.

However, 40 percent of households do not have a mortgage on their home, and for those who do, the average mortgage is $138,000. The average home in the survey is worth almost $283,000. Thus homeowners’ equity as a fraction of home value averages about 70 percent.

Because the Consumer Finance Monthly is done by phone, it probably oversamples homeowners, but the equity share calculation would not be affected much, Olsen said.

The 2004 Survey of Consumer Finance, conducted for the Federal Reserve, showed homeowners share of equity was 65 percent, which is closer to the Ohio State number than last week’s data release based on what are called “flow of funds” data.

Equity is not the only measure of the stability of the housing market, Olsen said. A traditional benchmark used by lenders to determine if a mortgage is well-secured is whether the amount still owed on the mortgage is less than 80 percent of the house value.

This ratio of mortgage to house value is called the “loan-to-value ratio.” The Consumer Finance Monthly data show that 82 percent of homeowners with a mortgage have a loan-to-value ratio under 80 percent.

How are these borrowers doing? A common criterion for a troubled borrower is having a payment at least 60 days late in the past 12 months. By this measure, in 2007, 2 percent of borrowers with loan-to-value ratios under 80 percent are troubled, versus just under 6 percent of those with loan-to-value ratios over 80 percent.

Among those with loan-to-value ratios over 100 percent, a real danger sign in terms of loan quality, fewer than 7 percent have been 60 days or more late on their house payments in the past 12 months, suggesting even these borrowers are only rarely behind on their payments.

“Owning your own home has always been part of the American dream, and people do not readily part with their dreams,” Olsen said.

In other debt categories surveyed by the Consumer Finance Monthly, a slightly lower fraction of households still owed money on their credit cards after their most recent payment —about 32 percent, compared to 33 percent in 2006.

The average balance remaining after their most recent payment in 2007 was $7,500, up from $6,300 in 2006. Because credit cards have become such an important way of handling transactions, credit card balances can give a misleading picture of credit card debt by mixing together balances after the most recent payment with convenience-use balances that will be paid when they are due, Olsen said.

While true credit card debt has increased about 20 percent in the past year, other installment debt, which is owed by about 38 percent of households, averaged $12,400 in 2007, down from $18,600 in 2006.

Payday loans — short term, unsecured loans from storefront lenders — declined from 2006 to 2007, with the percentage of households having a payday loan falling from 1.3 percent of households to 1.1 percent and the average amount owed among those with payday loans declining from $2,400 to $1,900.

Consumers are shifting to credit cards and away from other installment lending as credit cards play a larger role in both transactions and borrowing by young households when they are starting out. Economists have long stressed the tendency of consumers to incur debt when they are young and paying it off as they age, according to Olsen.

“Median net worth also increased from 2006 to 2007, going from $178,000 to $206,000,” he said.

He cautioned, however, that the declines in real estate and the stock market over the past few months are not yet reflected in these data.

Olsen said that further information on home values, equity, net worth, and debt will be released by the Ohio State center in the coming months as the 2008 data are collected and analyzed.